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Exploring the impact of different carbon emission cost models on corporate profitability

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Abstract

With increasing pressure to cut carbon emissions and develop sustainability plans, companies need carbon credits to offset emissions that cannot be eliminated from their operations, new global carbon exchange to launch in Singapore by 2021 end, the high-quality credit can bridge this gap and play an important role in the overall climate change mitigation strategy. The purpose of this research is to use the production data (including carbon emissions) of paper-making companies in Taiwan to establish a circular economy mathematical programming model and the concept based on the activity cost method (ABC) to explore the impact of different carbon emissions costs (such carbon tax, carbon cap-and-trade, etc.) on the company’s production structure and profitability impact. The research results show that different carbon emission cost models have different effects on the company's optimal product-mix and profitability. The managerial implication is to combine the extensive application of the carbon emission credit mechanism, which can offset the carbon emissions in the production process and have a significant impact on the company's sustainable competitiveness. In addition, this study can also enable decision makers to understand the impact of different carbon emission cost models on the profitability of the company's product mix, which can be used as a reference for production planning decisions.

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Abbreviations

Cm :

The unit cost of material m, m = 1,2,3,…s

Mim :

The amount of material m required per unit of product i

YRi:

The production yield of product i

MQm:

The maximum available quantity of material m

WQi:

The amount of industrial water required per unit of product i

Wp:

The unit cost of industrial water

AWQ:

The maximum available quantity of industrial water

LQ0 :

The normal working hours of direct labor

LQ1 :

The total working time under 8 h of normal working hours and 2 h of overtime

LQ2 :

The total working time under 8 h of normal working hours and 4 h of overtime

LC0 :

The direct labor cost for working hours at LQ0

LC1 :

The direct labor cost for working hours at LQ1

LC2 :

The total number of hours required for direct labor

TLH:

The total number of hours required for direct labor

LHi :

The direct labor hours required for unit product i

HRip :

The machine time required to produce a product i in process p, p = 1,2,3,…,r

MCP :

The hourly machine cost of production process p

MHp :

The maximum machine available time of process p

ACj :

The hourly cost of batch-level activity j

QBij :

The quantity per batch of product i in batch-level activity j

NBij :

The batch number of product i in batch-level activity j

TRj :

The time required per batch of batch-level activity j

TAj :

The time available of batch-level activity j

Xi:

The sales of product i, i = 1,2,3,…,n

CEij:

The carbon emissions per unit of product i in process j

TCE:

The total carbon emissions

TCE1 :

The maximum CO2 emissions within the first tax rate range

TCE2 :

The maximum CO2 emissions within the second tax rate range; if the CO2 emissions exceed TCE2, then it will be taxed at the tax rate of the third carbon tax range

ETR1 :

The tax rate for the first carbon tax range

ETR2 :

The tax rate for the second carbon tax range

ETR3 :

The tax rate for the third carbon tax range

Q1 :

The CO2 emissions for the first tax rate range

Q2 :

The CO2 emissions for the second tax rate range

Q3 :

The CO2 emissions for the third tax rate range

CET1 :

The CO2 emissions tax at TCE1

CET2 :

The CO2 emissions tax at TCE2

CET3 :

The CO2 emissions tax at TCE3

ULE:

The Government-restricted emission caps

CRP:

A single price of carbon right

MACRP:

The maximum carbon rights that can be purchased

REP:

The amount of waste paper (including cut edge materials and defective products) recycled for reuse

WRR:

Waste water recycling rate

REW:

Quantity of wastewater recycled for reuse

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Acknowledgements

The authors would like to thank the Ministry of Science and Technology of Taiwan for financial support of this research under Grant No. MOST106-2410-H-008-020-MY3 and MOST109-2410-H-008-029-MY2.

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  1. Department of Business Administration, National Central University, Jhongli, Taoyuan, 32001, Taiwan

    Wen-Hsien Tsai, Shang-Yu Lai & Chu-Lun Hsieh

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Tsai, WH., Lai, SY. & Hsieh, CL. Exploring the impact of different carbon emission cost models on corporate profitability. Ann Oper Res 322, 41–74 (2023). https://doi.org/10.1007/s10479-022-04519-4

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